London arbitration 14/18
The above recently reported London arbitration decision offers useful guidance on the interpretation of a common time charterparty clause – often found in fixture recaps – requiring a vessel’s holds to be ‘free of salt’ on delivery. It also provides useful commentary on the suitability of the silver nitrate test in establishing compliance with the clause when the intended cargo is steel products.
We acted for the successful owners in the reference - a brief summary of the findings of the tribunal is set out below.
Following the vessel’s delivery into their service, the charterers carried out silver nitrate testing (under protest) to the vessel’s holds at her first loading port. The results of this testing indicated the presence of salt traces and the charterers purported to place the vessel off hire until the holds were cleaned further. Without prejudice to their primary position that the testing was unauthorised, the owners undertook further cleaning in order to minimise delays.
On arrival at the second loading port, the charterers again carried out silver nitrate testing, and again alleged that the holds were not free of salt, purporting to place the vessel off hire. As at the first load port, the owners, again under protest, carried out remedial works until the holds were accepted and loading commenced. Importantly at the second load port, no further silver nitrate testing was carried out before the vessel’s holds were ultimately ‘accepted’.
Following discharge of the cargo, the charterers carried out a cargo condition survey, which indicated no issues with respect to the cargo loaded at the second loading port. That survey did however indicate some traces of chlorides on the cargo loaded at the first loading port. The owners’ surveyor attributed the existence of those chlorides to the exposure of the cargo to the moist marine conditions prior to loading.
The owners claimed a balance of hire in respect of the periods in which the charterers had withheld hire at the first and second loading ports. The charterers alleged that the silver nitrate test was customary when loading steel products and on the basis of the results of such tests, they were entitled to place the vessel ‘off hire’ for the periods that they did. Their argument was essentially that silver nitrate = salt = not ‘free of salt’.
The owners argued that the charterers’ construction of the term ‘free of salt’ was flawed and that the silver nitrate test was not appropriate to establish compliance of the vessel’s holds with the relevant clause. They submitted that it cannot be expected that a seagoing vessel be entirely free of any traces of any chloride.
The tribunal found in the owners’ favour. In doing so, it held that the charterers failed to establish that the silver nitrate test was customary and, in light of its extreme sensitivity, it would be surprised if that was indeed the case.
As to the construction of the words ‘free of salt’, the tribunal was not convinced that the literal interpretation which the charterers ascribed to it should be preferred. It considered it unrealistic to expect a vessel in a maritime environment to be free of any salt whatsoever. The tribunal considered that a more realistic and commercially sensible interpretation of the words would be ‘free of any significance traces of salt’.
This decision offers some useful guidance on the interpretation of terms commonly encountered in both steel trades as well as other products which may be sensitive to salt. It also offers guidance as to the manner in which a tribunal is likely to approach the interpretation of ambiguous contractual terms in the context of the business environment in which such terms are designed to operate.